Asked by Genelyn Silva on May 02, 2024
Verified
When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?
Income Elasticity
measures how much the quantity demanded of a good changes in response to a change in consumers' income.
Midpoint Method
A technique used in economics to calculate the percentage change between two values, averaging the initial and final values to estimate elasticity.
Normal Good
A good for which demand increases as the income of the consumer increases, holding all else constant.
- Execute the midpoint method for calculating different elasticity forms, such as demand's price elasticity, demand's income elasticity, and cross-price elasticity.
Verified Answer
JS
Jackson SchenkMay 03, 2024
Final Answer :
The income elasticity of demand for the Shaffers is 1.89. Since the income elasticity of demand is positive, eating out would be interpreted as a normal good.
Learning Objectives
- Execute the midpoint method for calculating different elasticity forms, such as demand's price elasticity, demand's income elasticity, and cross-price elasticity.